Northern Rock

[James]

Anyone got savings there. I have and I'm a bit worried. Fortunately it's only a couple of grand.

[mockney piers]

Who was it talking about how my argument that traders don't make money doesn't hold water because banks make money?

He clearly hadn't heard of sub prime mortgages, institutional incompetence, untrammelled greed or the wall street crash!!

[mockney piers]

Sorry James, not to panic you.

But I have to say it's not looking good

people queueing to withdraw their money

 

[lozzyloz]

Saw this occur in Moscow during the meltdown of Aug 1998. Never thought I'd witness it in the UK. Seems a bit of an (understandable) hysterical response as I'm sure investors cash is safe in this case but there well maybe other companies less well capitalised. Look out people with big mortgages and huge cc debts because that's who will carry the cost.

[SeanMacGabhann]

I have heard much about the savers but I did wonder about the mortgage holders - how are they likely to bear the cost - increased charges/rates?

[lozzyloz]

Northern Rock haven't denied that borrowing costs will go up. However I suspect that costs will go up across the board and that those in fixed interest deals will feel the shock more than others because of increased rates and arrangement fees.

[Asset]

I did wonder that if your mortgage company goes tits up, who is going to collect the debt? Do you get away with it or do you owe your house to some liquidator?#

It's probably unecessary to remove savings but then if everyone else is doing it?

[lozzyloz]

Trouble is that if you have a mortgage then you don't actually own your own house or at least not all of it. If your mortgage Co goes tits up someone else buys their assets (your house) at a discount and you continue paying the new owner.

Your last comment is so right - herd mentality starts to kick in.

I think we might start to see more property flood onto the market. The flat market is already becoming quite saturated.

[Ganapati]

The property market looks like its already stalling. We've been looking casually to move, and I've had estate agents hounding me night and day about how the vendors will "take an offer." Houses are definitely sitting on the market longer as well, and noticed a couple around the area that went back for sale after being under offer.

[downsouth]

Northern Rock are in this predicament due to their lack of cash/hard assets unlike most of the traditional big lenders. They have to go into the money markets to obtain credit for the loans they give out - not the greatetst strategy eh! But in a low inflation/interest economy it worked a treat - 5 interest rates later and sub-prime debacle it is no longer viable.

Word is it will be snapped up by a larger corporate bank but there are 1 too many variables at the moment for any to step forward.

It certainly is batten down the hacthes time. One silver lining is hopefully house prices will moderate long enough for wages to make some gain for first time buyers. Let's just hope it doesn't get 'too bad'.

[Asset]

northern rock

James, according to this article you're guaranteed to get back the first ?2,000 of savings in the event of insolvency and 90% of the following ?33,000.

[mikese22]

Northern Rock is about the safest place you could possibly put your money right now - it's backed by the Bank of England! Buy shares in it I say - sure to be bought out soon for a profit

[SeanMacGabhann]

As this debacle unfolds im reminded of the recent city bonus thread and the certainty of some people that these idiots who self regulate and self award bonuses are some how worth so much. .

if this thing reaches its potential ugly conclusion i have no doubt that they will blame those people who took out mortgages they couldn afford. . Despite that being the business model of these institutions.

[ChavWivaLawDegree]

I've never got any money to save, no mortgage, no credit cards and I'm not likely to. I've never wanted to buy something I can't afford, and the thought of being tied to a job I hate to pay for all kinds of crap I don't need would destroy my soul.

I don't trust banks or pension companies, and think shoving granny into a home, or your kids onto nannies while you work your arse off for employers (who would sack u the minute u get pregnant/sick/depressed/alcoholic if they get the chance) and save with these dodgy blood-suckers is the wrong way to ensure your future in your old age.

I will be a burden on my kids, just like I've accepted that they have been and will continue to be a burden on me. I'm a believer in putting your family before any job, and hope that my future and old age will be as secure as me and my little dynasty can collectively make it.

[James]

Thanks for the reassurance Asset.

Problem is I know the people drawing out their money are just making it worse. But I don't want to be the last one to do so... Even the assurance that the FSA will cover my (relatively small) deposit seems hard to believe. What about those victims of the pensions scandal, weren't they given similar assurances that they had nothing to worry about?

I had no idea NR was sailing so close to the wind. I blame the management. However I do wonder how thick these people who take out huge sub-prime mortgages with no means of paying them back must be...

[macroban]

Why have Alliance & Leicester shares gone down 14% this morning?

[AB]

Alliance & Leicester are structured in a similar way to Northern Rock. Banks borrow from financial markets as well as using savings to lend out. Northern Rock relies on borrowing from the markets as they have fewer savings held with them. This meant that when the credit crunch happened, they couldn't borrow enough so needed bailing out.

Alliance & Leicester have a similar structure, I understand (although not quite as dependant on borrowing) so they would be likely to be next on the list.

[Jeremy]

mockney piers Wrote:

-------------------------------------------------------

> Who was it talking about how my argument that

> traders don't make money doesn't hold water

> because banks make money?

> He clearly hadn't heard of sub prime mortgages,

> institutional incompetence, untrammelled greed or

> the wall street crash!!

That was me - I don't think you really understand my point though. Although this isn't the right place for an in-depth discussion of investment banking.

I don't really know much about retail banking and mortages, but isn't the Northen Rock situation largely a case of media sensationalism and consumer panic?

[downsouth]

It is definitely oversensationalised. It won't go under LlyodsTSB already offered to take it over. But the Treasury/FSA said no - there should be an auction. But that news could have calmed everyone down straight away. I wish I had a spare 5k I would buy some shares right now!

[lozzyloz]

The biggest sensationalists are the city traders. It's those traders acting on behalf of institutions that are taking a view and acting like lemmings as they sell of banking sector shares. Most of those shares will recover today amidst another round of profit taking. Also, I remember when the US sub prime market crash story started to unfold, it was the heads of HSBC's US division that were fired with a massive payoff and after earning a huge bonus for essentially screwing up! Can't say I blame the average Northern Rock saver for taking their money out, why should they trust the bank or the government. There's far worse to come and a lot that's not being told to Jo Public in a bid to calm the situation and protect city bonuses.

[James]

Will Alliance & Leicester be next? Or is that sensationalism too?

[Nero]

The government will not let any bank or building society go under. It just won't, as it knows the result would be chaos. I don't have money in Northern Rock, so it is probably easier for me to be calm about it, nontheless. Nero

[DaveR]

The problems experienced by Northern Rock, and the cause of jitters regarding A & L and Bradford & Bingley, is that each of them borrowed large amounts of short-term money and used it to make long-term loans i.e. mortgage advances. They are all still essentially solvent because those mortgage loans still have the same asset value. The US sub-prime mortgage problem e.g lots of borrowers defaulting and doubts as to the value of the security has resulted in no-one really knowing which financial institutions are exposed to losses, and for how much, so Northern Rock find themselves unable to borrow short-term money in the markets, and had to go to the Bank of England. It's true that the government won't let any of them go under, but you have to hope that some lessons will have been learned.

[downsouth]

I agree entirely with the post above.

Northern Rock to be fair hasn't mismanaged itself beyond not using stress testing for when banks wouldn't lend to it. If it had as much savings held with it as HSBC it would be fine, but it doesn't. It will be taken over or split up soon enough and 'hopefully' this round of jitters will go. But there are still bad times ahead in the midterm for the economy as a whole - inflation is on the rise.

[macroban]

> They are all still essentially solvent because those mortgage loans still have the same asset value.

Until the market value of the mortgaged properties falls below the amount of the mortgage loans?